France Surrenders: ‘Adieu’ to the 75% Supertax

9 Jan 2015

Nothing calls to mind the sad vision of a perennial 1970s-style economic sclerosis more than France–and nothing is more representative of Gallic stubborn refusal to live in the real world than its flagship 75% top rate of taxation.

For French socialists, in the land where every day is Sunday afternoon, the serene denial of reality is being rudely punctured. President Francois Hollande, who once had proudly hailed his supertax as “an exceptional contribution to solidarity” will see this exceptional contribution to France’s thriving expat movement quietly disappear on February 1.

However, Sven Larson, senior fellow at the Wyoming Liberty Group, disagrees that the “solidarity tax” has even anything to do with genuine solidarity: “Solidarity is an act of voluntary giving, of genuine, personal care and compassion. Forcing people to give is not solidarity. It’s communism.”

Also speaking to Breitbart, Philip Booth of the UK’s Institute of Economic Affairs, questioned the effectiveness of high taxes in generating high revenues:

As the UK and the US lowered marginal tax rates in the 1980s, we found that revenue from higher earners increased. Fewer moved abroad, there was more entrepreneurial activity and people stopped trying to disguise income. France’s flirtation with the 75 percent tax rate demonstrates that, if a country taxes the rich penally, everybody will suffer.

The economic principle at work here is represented by the Laffer Curve. Sadly, taxing ‘until the pips squeak’–as one British chancellor famously promised–is no laughing matter.

At around the same time that socialist Dennis Healey was busy implementing his threat, levying a pip-squeaking top rate of 83% (and thereby contributing towards the UK’s notorious Winter of Discontent), U.S. economist Arthur Laffer was suggesting that raising taxes beyond a certain point actually lowers the revenue yield.

But Laffer’s model doesn’t impress everyone. Back in 2008, the man who is now President of the United States, said that even if higher taxes resulted in lower yields, they should still be maintained as a matter of “fairness”–and to be fair, the nation’s debt has indeed more than doubled under his watch.

The French supertax was an ideological sop to France’s hard-left, and also served to distract from the deeper economic malaise behind the crumbling facade of “solidarity.”

This is a point Larson underlines, and which serves as a warning to U.S. policymakers: “The real, structural problem in the French economy is that its welfare state is too big. The private sector can no longer carry it. Like most of the rest of Europe, France is in a state of perennial stagnation, a state I call industrial poverty.”

Philip Booth draws the same conclusion: “The problem with France is its absurd level of government spending. Essentially, the state has usurped the proper functions of individuals and society, and all French citizens are paying the price.”

Banking industry consultant Patrick Barron was quick to point out that “high earners do not take; they earn.” He told Breitbart News that the poorest of the poor benefit from the skill of high earners, even if indirectly: “In most developed countries, cell phones and Internet connections are so cheap that even those on welfare have these marvelous services. Those who bring these marvels to us are some of the world’s highest earners.”

Barron also observed that “a tax reduces the incentive to work,” adding that “if we assume that high earners are engaged in legitimate trade, then their high earnings are nothing more than validations of their worth to society. Do we really wish to create a tax environment where such people make a rational decision not to work?”

All this inevitably leads to the question of what actually helps the poor most–policies aimed at wealth creation or policies aimed at wealth distribution. Kishore Jayabalan, Rome director of the Acton Institute, was unequivocal:

Rather than helping the poor, redistributionist policies usually end up driving away the rich, increasing state power, and impoverishing more people. If these leftish politicians were truly for the poor, they’d be encouraging as much economic competition as possible and taking on entrenched corporate interests.

Llewellyn Rockwell, founder of the Alabama-based Mises Institute, whose mises.org is the most-visited economics website in the world, told Breitbart: “Taxes are a synonym for wealth destruction. The French 75% supertax on the most successful people was particularly damaging–many Frenchmen up and left.”

The conclusion of the French supertax fiasco is unavoidable: punitive high-tax policies, wherever they are imposed, lead to economic stagnation and ultimately ruination. Political decisions have economic consequences, and these consequences often fall hardest on those unintended victims whom policymakers claim to want to help the most–the poor.

“It had only bad effects,” Rockwell said of the supertax, “even from the standpoint of the state.”